Home' Trinidad and Tobago Guardian : June 16th 2016 Contents JUNE 16 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COVER STORY | BG7
Continued from page 6
With regard to Loran Manatee, Olivierre
explained that "a lot has happened in the 13
years since the discussion first started on the
field which is jointly owned by T&T and
The field has 10.25 trillion cubic feet of
natural gas of which 26.25 per cent belongs
Minister Olivierre explained that having
signed the framework agreement on the recent
visit of President Maduro they are now final-
ising the "unitisation and unit operating agree-
ment." That spells out who is the unit operator.
She said: "There are four companies
involved: on the Venezuelan side Chevron
Global and PDVSA and on the Trinidad side
Chevron TT and BG-now Shell. Those four
companies have to decide which one will be
the operator of the field, who will have the
employees and then produce a framework for
how that is governed."
Minister Oliviere explained that the gov-
erning structure will be like a board. The body
will be made up of the four companies and
the two governments and the voting rights
will be based on the particular entity s share
in the reserves.
So that when it comes to decision making
she said they have to decide what percentage
of entities need to be represented at the meet-
ings "depending on what percentage of vote
you need to have at particular levels some
will be 100 per cent, others may be less, so
all those details in the governance structure
have to be worked out."
The two governments, she said, are not
"involved in the physical operations including
issues like who has the employees, who takes
the lead in doing the development plan, which
is the final agreement, the companies have
to finalise those details but that is the sticking
She said after several attempts to get an
agreement from the companies "we were
given a draft agreement last December, but
some elements still had to be worked out.
But that was a big step because previously
we had nothing, so at least now we know
along what lines they are thinking. But both
governments want the pace to be ramped up.
One of the agreements which was signed
when President Maduro was here last month
was another letter giving the parties a 120-
day deadline. We really want to finalise the
agreement now, now, now," she said.
Once the governments get that finalised
agreement, she said, then "the clock starts
ticking in terms of the development plan, so
within ninety days (after the 120 days) they
are supposed to produce a development plan
for approval, which will outline specifics on
where the platform will be built, will it be on
the Venezuela or Trinidad side, exactly how
many wells will be drilled, in what programme,
and how will they produce it."
But the minister said while over the 13 years
postures have changed with Venezuela now
willing to allow the gas to land in Trinidad,
there is another problem.
"There is some sense that given the current
economic situation with the price of com-
modities the companies are not so eager to
have it produced, because the reserves are
significant over ten trillion cubic feet in Loran
Manatee. There is the belief that the companies
probably see those reserves as being more
valuable on their books, than being produced.
So there is some sentiment that they may not
be so eager to produce that gas."
But she said both governments are eager
for the field to get into production because
"both countries can benefit, but the multi-
national companies are just interested in the
It s for that reason, the minister said, T&T
and Venezuela governments got together. "We
trying to push them to finalise the agreement.
This is why the Dragon opportunity came
into being. There are no multinationals
involved there. It s 100 percent PDVSA (the
state-owned Venezuelan energy giant) and
we believe with combined will there is great
desire on both sides. We don t have to worry
about multinationals interfering in our decision
making. So that s why we see this one as
being able to be brought to market in a short
space of time."
She remains optimistic, however, that by
the end of the year significant progress would
have been made on moving Loran Manatee
forward. Once the agreement is finalised there
is infrastructure to be built.
"They still have to build the pipeline but
by 2019 we should be open to new supply
sources, there are a lot of opportunities."
'Chevron, Shell not anxious to develop Loran Manatee'
An IMF team has recommended
to the government that it
change its taxation policies and
impose the Supplemental
Petroleum Tax (SPT) based on
profits made by oil producers and not on the
international price of oil.
This was confirmed by Finance Minister
Colm Imbert in a telephone interview with
the Business Guardian on Monday, with the
minister saying the government has not yet
made a decision on the way forward but is
considering the proposal.
As it currently stands, the SPT is imposed
at 18 per cent on oil production once the
weighted price for a basket of T&T crude oil
goes past US$50 a barrel.
Some marginal producers have been arguing
that the charge is onerous and that it can lead
to a situation later this year where they finally
stop the haemorrhaging due to low crude prices
and then find themselves still under water
when prices go past US$50 a barrel, as is
expected to hold later this year.
Imbert said the team from the International
Monetary Fund that came to this country to
provide government with technical assistance
in its taxation regime for the energy sector
had recommended the change and that gov-
ernment was concerned that any change would
lead to increased production.
He said, "We are not looking at reviewing
the percentage of the SPT but rather how it
is applied. The IMF team has recommended
that we look at profitability rather than price.
When we get a final report from the adviser
we will look at all aspects and recommend
changes. Whatever had to be done must be
done decisively because our overriding objective
is to stimulate production by generating revenue
without de-motivating high cost producers."
The SPT has been important in generating
Sherwin Long, Head of the Trinidad and
Tobago Extractive Industries Transparency Ini-
tiative said: "Based on independently audited
and verified information from the past three
EITI reports, between 2011-2013 the Govern-
ment collected $10.3 billion in SPT. Oil prices
averaged $95 over that period and average $34
per barrel in 2016 so you can see the impact
of prices on revenue and exactly how much
the country earned from SPT in a high-price
"SPT is a tax on windfall profits from crude
oil and condensate sales and SPT rates are cal-
culated based on the weighted average price
of oil, meaning that marine and land producers
are taxed at differing rates depending on the
price of oil.
"If the weighted average price of crude oil
falls to between US$0 and US$50 per barrel
then the SPT rate is zero percent, meaning
select marine, new field, land and deepwater
block producers make no payments to the
Government. In 2013, the country received
TT$3.9 billion from SPT payments and the
current prices will obviously impact on Gov-
ernment revenue (especially as SPT is due on
a quarterly basis)."
Helena Innis, who was for many years the
Director of Resource Management at the Min-
istry of Energy and helped shape many of the
country s energy sector policies, said one had
to look at any change Is in the context of the
two categories in which the oil producers oper-
ate in T&T. There are companies with Pro-
duction Sharing Contracts (PSC) and those
with Exploration and Production (E&P) con-
She said the issue is so complex it would
be easy to misunderstand but in a nutshell this
is contained in Article 21 of the PSC. It would
have varied in that all PSCs do not have the
same words but this is what the country was
attempting to achieve over the years:
"The Government s share of petroleum shall
be in lieu of Supplemental Petroleum Tax,
Petroleum Impost, Royalty, and Petroleum
Production Levy being obligations which the
contractor ordinarily would have been liable
to pay in accordance with the laws of Trinidad
and Tobago. The Government s share shall
not be a deduction for tax purposes".
In PSCs, Innis said, the government s profit
share was meant to take care of all the con-
tractors tax obligations. Therefore no matter
what the change in law, the PSC grants stability
in that no matter what the change to the tax
law, the contractor pays no more or less than
its profit share.
She said: "With an E&P licence or what is
called the Tax/Royalty system, the licensee
pays all of the taxes applicable. SPT is paid on
gross income. This is an example of what it
looked like in 2012. As you can see no con-
sideration is given to whether the licensee
makes or does not make a profit. However in
the case of an E&P licence changes to the tax
law can be applied."
Imbert admitted that the government needs
every cent it can get but acknowledged that
there are still strong calls for changes in the
IMF recommends changes in SPT regime
Royalty at 0%
Gross Income -- 68,875,500,000
Less Opex -- 4,828,530,000
Less Capex -- 6,089,000,000
(40% uplift on exploration costs)
Net Income -- 57,957,970,000
SPT (18% of Gross Income) --
Petroleum Production Levy (4%
of Gross Income) 2,755,020,000
Petroleum Impost (1.5% of Gross
Income) -- 1,033,132,500
Net Taxable Income (NTI) --
Petroleum Profits Tax
+Unemployment Levy (40% of
NTI) -- 17,142,511,000
Total Tax Liability --
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